Presented by: - Ameera Zaid - Reham Contents: Company Background. Industry Background. Sales and Marketing. Supply Chain Process: Channels of Distribution Distribution. Impetus for JITD Program. Company background Barilla is an Italian multinational food company. It is the world's largest pasta producer In 1875 Barilla was found in a small shop in Parma, and next to the shop there is small laboratory makes the pasta and bread products Pietro sold them in his shop. In 1940s one of Pietro’s son called Ricardo led the company through a significant period of growth, in the same year he passed the company to his own sons. Over the time Barille become vertically integrated corporation with flour mills, pasta plants, and bakery product factories located throughout Italy. In 1960 Petro and Gianni Barilla began construction of a 25 million square meter state of the art pasta plant in rural town 5 km outside Parma. This massive facility drove the Barillas deeply into debt. In 1971 the brothers sold the company to the U.S. multinational firm W.R. Grace, inc. Company background 1979 Grace sold the company back to Pietro Barilla as failed to make its acquisition pay-off 1980s Successful return of the company. Enjoyed an annual growth rate of over 21% Growth was relaized (came from both organic, i.e. existing business expansions and non-organic, i.e. acquisition of new, related business) 1990 barilla had become Largest pasta manufacturer in the world with 35% of market share in Italy & 22% market share in Europe Industry Background Origins of pasta is unknown Originated from China and first brought to Italy by Marco Polo Others claim that pasta’s origins were rooted in Italy Pasta consumption Nearly 18 kilos of pasta per year per capita consumption in Italy Limited seasonality in pasta demand Industry’s Growth Flat growth of less than 1% p.a. with an estimated of 3.5 billion lire Growing segment in semolina & fresh pasta Export market rise as much as 20-25% per year. Eastern Europe as an excellent export opportunity Plant Network Barilla owned and operated an extensive network of (plants located throughout Italy (see Table 5-3 and Figure 5-1) Barilla maintained state-of-the-art research and development (R&D) facilities and a pilot production plant in Pedrignano for developing and testing new products and pro- duction processes. Shelf Lives for the Products: Fresh Products include: Dry Products represent 75 % of Bairlle sales and had long shelf lives of 18-24 months Dry pasta , flour - Fresh pasta : 21 shelf days. - medium shelf lives of 10 to 20 weeks. - bakery products as cookies, biscuits, bread sticks, and dry toasts. Fresh bread : one day shelf life. Channel of Distribution The products shipped from the plant directly to the one of CDCs: the northern in Pedrignano or the Southern in outskirt of Naples where they purchased by distributors. The distributors in turn shipped the product to the final destination. The fresh products hold only for three days in each of CDCs, in contrast, dry products in each CDC held about a month’s worth of dry product inventory. Two third of Bairlla’s products were destined for supermarkets. In the distribution system Barilla maintained separate distribution systems for the fresh and dry products because of their differences in perishability and retail service requirements. Fresh products purchased directly from CDCs by independent agents who then channeled the products through 70 regional WHs in Italy. Channel Distribution: Barilla products distributed through three types of retail outlets: Small independent shops: 35 % of the dry products. distributed from Barilla’s internally owned regional WH to small independent shops Inventory over two weeks. Supermarket Chains: 70% of dry products. Distributed through GD 10-12 days of inventory Carried a total of 4,800 dryproduct SKUs. Carry the product in only one packaging option. Independent supermarkets: 30% of dry products distributed by DOs. • Due to regional preferences and differences in retail requirements, a typical distributor might dis-tribute 150 of Barilla's 800 dry product SKUS. Most distributors handled products coming from about 200 different suppliers; of these, Barilla typ-ically would be the largest in terms of the physical volume of products purchased • Distributors typi cally carried from 7,000 to 10,000 SKUS in total. However, their strategies varied. For example, one of Barilla's largest DOs, Cortese, carried only 100 of Barilla's dry products and carried a total of only 5,000 SKUs. Both GDs and DOs purchased products from the Barilla CDCS, maintained inventory in their own warehouses, and then filled supermarket orders from their warehouse inventory • The order would then be transmitted to the store's distributor; orders were typically received at the store 24 to 48 hours after receipt of the order at the distribution center. DISTRIBUTION Distributor Ordering Procedures Most distributors-GDs and DOs alike-checked their inventory levels and placed orders with Barilla once a week. Barilla products would then be shipped to the distributor over the course of the week that started 8 days after the order was placed and ended 14 days after the order was placed-the average lead time was 10 days. small distributors might order only one truckload a week, whereas the largest warranted deliveries of as many as five truckloads a week. Most distributors used simple periodic review inventory systems. For example, a distributor might review inventory levels of Barilla products each Tuesday; the distributor would then place orders for those products whose levels fell below the reorder level. Barilla Sales & Marketing Advertising • • • • Positioned Barilla as the highest quality, most sophisticated pasta product available Modern, sophisticated settings in major Italian cities instead traditional Italian folklore focused on developing and strengthening loyal relationships with Italian families by using messages such as( Where there is Barilla, there is a home) advertising themes were supported by sponsor ships of well-known athletes and celebrities) For example, Barilla engaged tennis stars Steffi Graf to promote Trade Promotions • Barilla's sales strategy relied on the use of trade motions to push its products into the grocery distribution network Barilla sales • executive explained logic of the promotionbased strategy pro- Welsell to a very oldfashioned distribution system. The buyers expect frequent trade promotions which they then pass along to their own customers So a store will know right away if another store is buying Barilla pasta at a dis- count You have to understand how important pasta is in Italy Everyone knows the price of pasta Sales representatives Barilla sales representatives serving DOs spent an estimated 90 percent of their time working at the store level. In the store, sales reps helped merchandise Barilla products and set up instore promotions • sales rep spent a half day in a regularly scheduled weekly meeting with the distributor's buyer, helping the distributor place its weekly order • • Brilla divided each year 10 or 12 canvass period with 4-5 weeks in length, each corresponding to a promotional program • Discount offering for distributor: attracting distributor to buy the product as much as desired • Offered volume discounts, e.g. incentives of 23% for FTL orders • Incentives for Barilla sales representatives • The GD sales force rarely visited GD warehouses and usually sent their orders to Barilla via fax. What is the problem? 1- Demand Fluctuations Transportation discounts. Volume discount. Excessive promotional activities. Large variety of products and pack sizes and designs. No minimum or maximum order quantities. Lack for the forecasting system. Long order lead times. Lack for the sophisticated technology forecasting. Poor communication between ( retailers, distributors, sales, marketing and manufacturing ). 2- Conflicts regards to JITD implementation Internal Resistance They were concerned that if there were a strike in production, the risk of stockouts would increase. They also thought that figures would be reduced and the new system would not be flexible enough to respond to changes, and that sales promotions would no longer be possible. Another concern was that if the shelves in the distributors’ warehouses were not full of Barilla products, their competitors will move in and fill the space and then the distributors will push sales of competitor products instead of Barilla products. Also salespeople are worried that they will lose “power” because the functioning areas of marketing and sales will be narrower. External Resistance They don’t respond to this idea at all. They don’t want to provide with any data. They don’t want their products be controlled. They will not be more independent. Don’t want to lose the promotion they get from the CDCs. 1- What is JITD, and what aims for? It is innovative idea proposed by Brando Vitali which called just-in-time distribution (JITD), was modeled after the popular “ just-in-time” manufacturing concept by TOYOTA company. One of the solutions is Implementing JITD which aims to: - To correct the demand fluctuations from Barilla’s immediate distributors. - Avoid the stock out and holding inventory costs. - Match with the customers demand once ordered. - Reduce lead time and work smoothly during SC process. - Help the customers to achieve their objectives and avoid deliver delay. - The company will be more sufficient to match with demand. Ways to implement JITD strategy: Short term: - Convince Barilla’s CEO of the value of Long term: - the proposal. - Operation strategy should Identify the - order of importance of 5 KPIs ( cost, - speed, dependability, flexibility and quality ) for all parties. - Focus on company internal department - - by involve sales team in inventory \ distribution management. - Organize workshops to create awareness on the inventory and - Look for ways how to speed up with the delivery time. This will encourage the GDs& DOs to order more often. Change sales practices which cause demand fluctuations. Do contracts for exclusive distributers. Support new distributers to works with the company Do fixed price, and order the limits ( MinMax order levels) Run JITD strategy with one of the company depots. Try to provide the distributors with system linked with the company system in their computers. This will help to know their orders in advance. distribution chain issue. Implementing this strategy will help also help to manage the conflicts with internal and external resistant. Would JITD be feasible? Whom to be the target market? Yes, JITD would be feasible in 1990, it could be effective to reduce costs of carrying inventory at manufacturer, distributor, and retailer side. It’s, also effective minimizing stock out and suitable for functional product as in Barilla case. In order to be effective it is very important to be combined with “everyday low price” policy. Next customer to be targeted will be contracted distributers, followed by independent and chain supermarkets. In order to convince sales & marketing function that JITD is effective, so in this situation the Bullwhip effects will reduce too, and all the process of SC will process smoothly. By this way both parties will successful to achieve the objective in optimizing the inventory level, therefore we believe sales & marketing function would “switch sides” to become ambassador for JITD for 3rd party distributors (GDs & DOs.) Comparing between JITD & JIN strategy JIT JITD Jest-in- time distribution is innovative idea, and the main concept is rather than follow the traditional practice of delivering product to the distributors on the basis. Correct the demand fluctuation. Coordinating between the company and distributors. Needs for WHs because the products are massive. Many parties involve in the supply chain process. Just in time (JIT) is an inventory management system, used to manage the stock that is kept in storage. It involves receiving goods from suppliers as and when they are required, rather than carrying a large inventory at once. coordination between the company and suppliers to ensure prompt delivery. Do not produce items for sale until they have been ordered by customers, meaning inventory is low or nonexistent.
